Speak to most estate agents or conveyancing solicitors right now and they’ll tell you they’re run off their feet as people rush to complete residential property transactions before 30 June 2021.
That’s when the stamp duty land tax holiday in England and Northern Ireland comes to an end, exactly three months after it was originally due to finish on 31 March 2021.
Buyers who complete the purchase of their new home pay no stamp duty on the first £500,000, while buy-to-let investors only have to stump up the 3% surcharge. In both cases, significant savings are up for grabs.
It should come as no surprise, then, to learn the residential property market has been in a frenzied state, pretty much since January 2021 as the original deadline loomed large.
Somebody came to us recently asking for a recommendation on a good conveyancing solicitor. We told them “any property lawyer who is worth their salt is turning away work until the backlog clears”. That’s a fact.
Let’s have a look at why the market is like it is right now and explore what the tax implications are for residential property buyers for the remainder of 2021/22.
Stamp duty land tax until 30 June
Buyers in England and Northern Ireland will pay no stamp duty on the first £500,000 of the residential property price as long as they complete their purchase before the end of the month.
This tax break applies to all buyers, including first-time buyers. For example, Corinne and Verity are close to completing the purchase of their first home in Horfield for £440,000. As long as they do it before the end of the month, they will pay no stamp duty.
If they were to complete on or after 1 July 2021, the first-time buyers’ tax-free threshold would be £300,000. They would have to pay stamp duty at 5% on the portion above that figure, meaning a tax bill of £7,000.
You can certainly see why conveyancing solicitors have their hands full trying to rush these types of deals through before the deadline.
Rates from 1 July to 30 September
From 1 July 2021, the stamp duty land tax threshold in England and Wales will fall from £500,000 to £250,000. A 5% tax rate kicks in on the portion of the property price above £250,000 up to £925,000.
For a buy-to-let landlord, the difference in tax owed is significant. For example, Frank looks set to complete the purchase of a terraced house in St. Andrews for £615,000 some time in early July.
As a landlord, he will pay the stamp duty surcharge at 3% on the first £250,000. The remainder (£365,000) is liable to a 5% tax charge, so he can expect to pay £25,750 in stamp duty land tax (£7,500 + £18,250).
If he was to complete in June, he’d still pay £7,500 because of the surcharge. But he’d only pay £5,750 on the portion above £500,000, giving him a considerable saving of £12,500.
Rates from 1 October 2021
Subject to any further change, it should be business as usual for stamp duty in England and Northern Ireland from 1 October 2021. This is the same regime that was in place before the COVID-19 pandemic.
That means the tax-free threshold reverts back to £125,000 and the 2% tax rate returns on the portion of the house price worth between £125,000 and £250,000. The 5% rate will apply from £250,000 to £925,000.
If you’re considering moving home or adding to your property portfolio this year, getting the timing right could save you thousands. Email advice@dunkleys.accountants or call us on 01454 619900 to find out more.